Module 1 - Introduction to FinTech

Page 1: Course Introduction

• Course Title: Financial Technology Introduction to FinTech FI 491/891, Spring 2025

• Instructor: Caroline Genc

Page 2: Class Introductions

• Session for students to introduce themselves to each other.

Page 3: Instructor Background

• Origin: From Paris to Michigan

• Education: Ph.D. in Finance from Paris Dauphine PSL (2023)

• Institution: Joined Michigan State University (MSU) this summer

• Research Interests: Entrepreneurial finance, venture capital, behavioral finance, and a new focus on FinTech

• Contact: genccaro@msu.edu for questions.

Page 4: Student Background

• Expectations from students: Discuss backgrounds, main interests, future career plans, and any programming experience.

• FinTech Perspective: What does FinTech mean personally to students? Identify any known financial technologies.

Page 5: Course Structure

• Syllabus Overview

• Evaluation Components:

  • Participation: 10%

  • Quizzes: 30%

  • Mini Cases: 30%

  • Group Project: 30%

• Attendance: Expected from all students.

Page 6: Group Project Details

• Project Focus: FinTech Case Presentation on a specific topic within FinTech

• Group Formation: Group of 3 (or 2 depending on size)

• Timeline: Form groups by 2/3/2025, case must be approved before starting work.

• Presentation: Planned for last 2 weeks of the course (about 13 minutes per group).

Page 7: Introduction to FinTech

• General Focus: Overview and definitions of FinTech.

Page 8: Definitions of FinTech

• FinTech: Currently, no universally agreed-upon definition.

• In this class, it refers to technology-enabled innovation in financial services:

  • Defined by the Financial Stability Board as involving new business models or processes affecting financial markets and institutions.

Page 9: Scope of FinTech

• FinTech applies to companies that use technology to:

  • Improve or innovate existing financial products (e.g., savings, borrowing).

  • Make financial services more efficient and accessible.

Page 10: Industry Consensus

• General consensus emphasizes:

  • Technology-driven nature of FinTech.

  • Its role in improving, automating, and innovating financial services.

Page 11: FinTech Technologies

• Key technologies in FinTech include:

  • Cloud computing, APIs, AI, Machine Learning, Robotic Process Automation, Blockchain.

Page 12: FinTech Applications

• Examples of FinTech applications include:

  • Payments: PayPal, Venmo, Zelle, Stripe.

  • Personal Finance Apps: Mint, YNAB, Simplifi.

  • Robo-Advisors: Betterment, Wealthfront, Vanguard Personal Advisor Services.

  • Peer-to-Peer Lending: Prosper, LendingClub, Upstart.

  • Investment/Crypto Apps: Robinhood, Coinbase.

  • Insurtech (out of scope): Lemonade, Oscar Health.

Page 13: Overview of Course Modules

• Modules covered:

  • APIs, Banking Platforms, User Experience.

  • AI & ML.

  • Blockchain Technology & DeFi.

  • Smart Contracts & DApps.

  • Crypto Assets.

  • Payment Systems.

  • Credit and Lending.

  • Capital Markets & Trading.

  • Risks, Regulations, Future of FinTech.

Page 14: The Rise of FinTech

• Investment rose significantly from 2010 to 2019 peaking at $216.8 billion.

Page 15: Investment Trends

• Americas attracted over half of the total global investment in FinTech.

Page 16: FinTech Landscape

• Americas lead with over 13,000 FinTechs as of January 2024, establishing it as a global hub.

Page 18: Historical Context

• Roots: Growth in electronic banking in the late 20th century (1970s-1980s).

• Evolution: Dynamic changes in the fintech sector.

Page 19: Pre-FinTech Era

• Traditional financial services provided by physical banks, with no major technological innovations.

• Emergence of ATMs in 1967 and credit card networks.

Page 20: 1990s-2010s Era

• Key Innovations:

  • Online banking (Bank of America 1994, Wells Fargo 1995).

  • E-commerce growth (Amazon 1994, PayPal 1998).

  • Rise of P2P lending platforms.

Page 21: 2010s-Present Trends

• Boom: Growth in digital currencies, crowdfunding platforms, fintech startups, and CBDCs.

• Pandemic accelerated digital transformation in finance.

Page 22: FinTech Revolution Drivers

• Main drivers leading to FinTech boom:

  • Economic and regulatory changes.

  • Technological evolution.

  • Shifts in customer expectations.

  • Impact of the Covid-19 pandemic.

Page 23: Economic and Regulatory Changes

• Global Financial Crisis (GFC) as a catalyst for fintech growth:

  • Erosion of public trust in traditional banks and regulations enabling startups.

Page 24: Post-GFC Environment

• Continued low interest rates post-crisis shifted funding into fintech ventures, spurring growth.

Page 26: Economic Factors

• Talent Shift: Financial sector layoffs fuels talent acquisition for fintech. Increased innovation due to availability of experienced professionals.

Page 27: Technology Evolution

• Rapid technology advancements affecting productivity and business dynamics over 50 years.

Page 28: Technological Change Impact

• Resulted in greater computational power, altering the business landscape.

Page 30: Progress and Connectivity

• Key areas of technological progress include:

  • Data collection, digital connectivity, and the cloud.

Page 36: Cloud Computing Revolution

• Importance: Shift from internal servers to external cloud solutions reduces costs vastly for businesses.

Page 37: Cloud Scalability

• Efficiency: Allowing companies to adjust IT infrastructure to match variable user needs and activity.

Page 39: Access to Resources

• Cloud solutions opened access to powerful computing resources crucial for fintech startups with reduced initial investments.

Page 41: Changing Customer Expectations

• Consumer readiness for technology adoption stems from experiences with non-financial digital offerings that shape expectations for personalized services.

Page 43: Key Players in FinTech

• Disruptors:

  • Startups: Innovation and disruption.

  • Big Finance and Big Tech: Players in the FinTech arena.

  • Government bodies: Regulation and facilitation of innovation.

Page 48: Talent Access Challenges

• Difficulty in acquiring specialized talent due to competition from established tech and financial firms.

Page 49: Client Acquisition Challenges

• Building consumer trust and managing regulatory concerns noted as significant hurdles for fintech companies.

Page 50: Capital Raising Challenges

• Navigating complex regulatory processes while raising capital can slow growth for fintech startups.

Page 51: Regulatory Landscape

• Variations in financial regulations complicate market entry and startup operations, leading to increased compliance costs.

Page 52: Regulatory Sandboxes

• An approach to foster innovation by allowing startups to test their products in controlled environments with less regulatory pressure.

Page 56: Incumbents in FinTech

• Response Strategies:

  • Transform, partner, or acquire fintech to stay competitive.

Page 57: Presentation Expectations

• Analysis Focus: Examine case emergence, financial relevance, performance analysis, opportunities, risks, and interactive components for presentations.

Page 58: Project Details

• Expectation of group presentations to cover key analyses, technology insights, and include audience engagement quizzes on findings.

Page 59: Case Overview - Wise

• Founders: Taavet Hinrikus and Kristo Käärmann

Page 60: Founding Story

• Kristo's expensive money transfer experience led him to collaborate with Taavet for a more efficient currency exchange solution.

Page 63: Problem Identification

• Traditional international money transfer services suffer from high fees, lack of transparency, and slow processing times.

Page 64: Wise's Solution

• Operational Model: Utilizes P2P for cost-effective transfers aligned with real exchange rates, ensuring transparency and low fees.

Page 65: Transfer Mechanism

• Wise's operational efficiency by ensuring internal transfers minimize cross-border transactions, enhancing speed and cost-efficiency.

Page 67: Funding Journey

• Early funding from personal savings, followed by securing investments in 2012; rebranding to Wise reflects expanded services.

Page 68: Success Factors

• Market disruption, user-centric services, cost-effective methods, expansive offerings, and regulatory compliance contribute to Wise's achievements.

Page 69: Regulatory and Risk Considerations

• Potential regulatory challenges and the need to maintain user trust and competition in the burgeoning financial landscape.

Page 70: Implications for FinTech Ecosystem

• Wise's rise catalyzed competition among traditional banks leading to broader fintech acceptance and innovation.

Page 71: References

• Recommended readings for further insights include works by Arslanian and Fischer (2019) and materials from Wise's annual reports.